Discussing the scope of Farmers Mutual, NJ Appeals Court forces policyholder to pay the allocated pro-rata share of its insolvent carriers.

A New Jersey state appellate court, applying New Jersey law, affirmed a trial court decision in a coverage action brought by Ward Sand and Material Co against various of its primary and excess insurers.   The policyholder accepted Pennsauken, NJ Township’s municipal waste at its landfill from 1970 to 1978 at which time it sold the site to the Township.  Thereafter, in 1991, after entering into a consent order with the New Jersey Department of Environmental Protection, the Township sued Ward and others for cleanup of the site.  Ward notified its primary and excess insurers and the primary insurers agreed to defend Ward under a reservation of rights.

In 2003, the Property Liability Insurance Guaranty Association (“PLIGA”) began contributing to defense costs on behalf of Ward’s insolvent insurers.  PLIGA was created by New Jersey statute and consists of licensed solvent insurance companies to assist in paying covered claims of insolvent insurers.

Ward settled the landfill litigation for $5.5MM in 2009.  Only one of its solvent insurers contributed to the settlement by paying $1.5MM into escrow.   Ward commenced a coverage action against its primary and excess insurers seeking allocation and indemnification of the settlement.  On behalf of the insolvent insurers, PLIGA settled with Ward for approximately $1.3MM and $200,000 in legal fees. Ward then sought recovery of these unpaid amounts from its solvent insurers.  After hearing argument on the parties’ cross-motions for summary judgment, the trial court held that Ward was responsible for the remaining unpaid portion of the insolvent insurers’ liability.

The case was decided and argued in the context of the ruling in Farmers Mutual Fire Ins. Co. of Salem v. N. . Property-Liability Ins. Guar. Ass’n, 74 A.3d 860 (N.J. 2013), in which the New Jersey Supreme Court held that in a long-tail allocation matter, all other available insurance must exhaust before PLIGA was obligated to pay on behalf of an insolvent. The Farmers Mutual case turned on the 2004 amendments to PLIGA that had replaced existing common law.

Ward sought a retroactive application of these amendments based on the Farmers Mutual ruling, and based on the fact that the case clarified principles that predated the amendments, including that all coverage from a solvent carrier had to be exhausted before a policyholder had to contribute regardless of when the insurer became insolvent (i.e., before or after the Amendments to PLIGA Act and the Guaranty Fund Act).

The 2004 amendments applied to continuous indivisible injury or property damage over a period of years, and provided that all solvent insurers on-the-risk over the span of implicated years should have their coverage exhausted before PLIGA should be forced to contribute its $300,000 statutory limits. Prior thereto, common law provided that PLIGA should share equally in the allocation scheme up to its statutory limits.

In an unpublished opinion, the appellate court, applying de novo review, found that the amendments were, by their clear terms, to be applied only to “covered claims resulting from insolvencies occurring on or after December 24, 2004.”  All five of the policyholder’s insurers were insolvent before the amendments were enacted. Thus, the amendments did not apply and Ward was responsible for the remaining share allocated to its insolvent insurers that remained unpaid by PLIGA.  The opinion rejected as “simply incorrect” Ward’s technical arguments that the Act should apply to its claims.  The court noted the burden this placed on a “responsible business” that had dutifully bought insurance for such risks, but said it would be equally unfair to place this burden on the solvent insurers. Ward Sand and Materials Co. v. The Transamerica Ins. Co., No. A-1479-13T1 (N.J. Super. Ct. App. Div. Jan. 12, 2016).